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  Journal of Environmental Management (1996) 46, 281–308 On the Measurement of the Environmental Performance of Firms— A Literature Review and a Productive Efficiency Perspective Daniel Tyteca Institut d’Administration et de Gestion, Universite´ Catholique de Louvain, Place des Doyens, 1, B-1348 Louvain-la-Neuve, Belgium Received 23 March 1995 We define environmental performance indicators as analytical tools that allow one to compare various plants in a firm, or various firms in an indus
   Journal of Environmental Management  (1996) 46 , 281–308 On the Measurement of the Environmental Performance of Firms—A Literature Review and a Productive Efficiency Perspective Daniel Tyteca  Institut d’Administration et de Gestion, Universite´ Catholique de Louvain,Place des Doyens, 1, B-1348 Louvain-la-Neuve, Belgium Received  23 March 1995 We define environmental performance indicators as analytical tools that allowone to compare various plants in a firm, or various firms in an industry, witheach other and with respect to certain environmental characteristics. We startfrom a reflection about the kind of information that should be incorporatedinto such indicators, and the extent to which that information should beaggregated. Existing approaches are both rare and dissimilar. They range fromoversimplified indicators to more sophisticated ones, in which there is a trendto take somewhat arbitrary viewpoints. In the scope of the theory of productive e ffi ciency, three categories of factor are taken into account, i.e.inputs, desirable production outputs and pollutants in the form of ‘‘undesirable’’ outputs. Non-parametric e ffi ciency measures easily and usefullylend themselves to the derivation of environmental performance indicators.They are the duals of indicators that can be obtained in the traditionalframework of data envelopment analysis. We use data envelopment analysis todefine standardised, aggregate environmental performance indicators, that is,quantities comprised between 0 (bad performance) and 1 (good performance).Such indicators do not require the specification of any a priori weight on theenvironmental impacts that are being aggregated. A discussion is proposed onsuch topics as an analysis of the nature and causes of environmentaline ffi ciencies, and the relationship between ‘‘environmental performance’’ asdefined in this paper and the actual global e ff  ect of industrial activities onhealth (toxicity) and the environment. © 1996 Academic Press Limited Keywords : environmental performance, indicators, measurement, DEA (dataenvelopment analysis), literature review, productive e ffi ciency. 1. Introduction Among the human activities imposing a heavy burden on our environment, industrialactivities are in the foreground. While, in the previous two or three decades, thebehaviour of industries in that respect was mainly dictated by impositions srcinatingfrom governmental decisions (in the form of, e.g. regulation, standards, or taxes), somecompanies have recently realised the huge potential benefits they could obtain by 281 0301–4797/96/030281 + 28 $18.00/0 © 1996 Academic Press Limited  Measuring the environmental performance of firms282 adopting more conscious and pro-active behaviour towards the environment. Parallelto that evolution, there is an increasing need for tools that would allow for proper andobjective quantification or measurement of the performance of firms with respect to theenvironment. ‘‘Demands on companies to measure, document and disclose informationabout environmental performance will become more invasive—i.e. as the result of pressures from employees, neighbours, the general public, environmental groups andregulatory agencies. In the same way that public companies are measured by theirfinancial results, environmental performance will increasingly become a critical factorto scrutinise.’’ (Greeno and Robinson, 1992).James (1994) identified five main driving forces in the pressure for business en-vironmental performance measurement: the biosphere, financial stakeholders, non-financial stakeholders, buyers and the public. A similar argument was made by Haines(1993), who added one important aspect ‘‘to attain leadership in defining industry-wideenvironmental excellence’’. Regarding the financial stakeholders, a change seems indeedto have taken place in the attitude toward the environment: for example, based on1978 data, Jaggi and Freedman (1992) found that ‘‘. . . the markets are not rewardinggood pollution performance by firms . . . in the short run the firm’s profitability will benegatively a ff  ected by pollution abatement activities involving heavy expenditures’’,while, starting from 1986–88 data, Cormier et al. ’s results (1993) ‘‘weakly suggest thata firm’s [bad] pollution performance negatively a ff  ects its market valuation’’ (thussupporting an ‘‘ethical investor hypothesis’’) but may also find an explanation in thefact that ‘‘investors perceive that firms which are not meeting current environmentalstandards may only get in worse financial shape in the future’’.Various authors have located environmental performance measurement in the centreof a conceptual framework for business environmental management (e.g. Eckel et al .,1992; Taylor, 1992; Welford and Gouldson, 1993; James, 1994). Several companies havealready worked out various kinds of environmental performance indicators (see, e.g.Greeno and Robinson, 1992; Jackson and Chynoweth, 1992; Snyder, 1992; Coulter,1993; Fitzgerald and Fox-Penner, 1993; Hocking and Power, 1993; Wolfe and Howes,1993; Azzone and Manzini, 1994; James, 1994), but these are seldom disclosed explicitlyin the literature and are more likely to be specifically orientated towards the company’sobjectives. Additionally, there is obviously no attempt toward standardisation, whichwould allow, for example, for comparisons among firms and over time (Hocking andPower, 1993). Fortune ’s recent attempt to rank some of the biggest American companiesaccording to their environmental performance (Rice, 1993) can be considered as a stepin that direction, but it is based on a somewhat arbitrary choice of 20 criteria with arather subjective procedure (from 0–10 points).From a political economy’s point of view, what we would require is an indicator(or several indicators) allowing us not only to perform that kind of comparison in anobjective way but also to study the e ff  ect of various kinds of regulations or economictools, such as pollution standards, taxes or tradable permits, on environmental per-formance. Conversely, the information derived from environmental performancemeasurement can provide the public deciders with meaningful guidelines in order toimplement relevant economic and/or regulatory instruments.It should be made clear at this point what is our purpose in this paper. We look for one (or a few) instrument(s) that would allow us to account for the various possibleenvironmental impacts of industrial activities, and to compare in this respect analogousunits in a set, i.e. either plants in a firm, or firms in an industry, or even industrialsectors in an economy, or to monitor the behaviour of any of these units over time. In  D. Tyteca 283 T  1. Sample list of environmental impacts of industrial activitiesResources Raw materials uptakeEnergy consumptionWastes Water: BOD and/or COD (biochemical and chemical oxygen demand, respectively)TSS (total suspended solids)pHnitratesphosphatesheavy metals . . .Air: CO 2 NO x SO 2 Solid wastesToxic wastes: e.g. TRI—Toxics Release Inventory (EPA 1989, 1992)NoiseFurther impacts: Impacts on landscapeImpacts on biodiversityContribution to the greenhouse e ff  ectContribution to the ozone layer depletionContribution to acid rain deposition doing so, there is a crucial stage of aggregating the impacts: the option taken in thispaper is to suggest an indicator as a unique figure, in which all the information on theimpacts is supposed to be captured. This might require the adoption of adequate weightcoe ffi cients, which is the approach adopted by several authors in the literature. However,there is an alternative perspective, which we will try to adopt, that consists of exploitingthe ideas of the productive e ffi ciency theory. 2. Standpoints adopted in developing environmental performance indicators 2.1.    .   In order to adequately reflect the impact an industry may have on the environment,we have to define at the outset various measurements, as exemplified in the (non-exhaustive) list of Table 1. The indicators in Table 1 can be considered as ‘‘simple’’ inthesensethat theymeasureonlyoneaspect oftheimpact ofactivitieson theenvironment.There is, of course, some level of aggregation in a few of them, since, for example, BODmeasures global impact caused by various kinds of substances, while the contribution tothe greenhouse e ff  ect will obviously result from computations that account for variouskinds of interactions. In the same manner, the impact of polluting substances on humanhealth combines primary data on single e ffl uents or emissions with critical toxicitylevels (Martin et al ., 1991).In a second step of the definition of indicators, we might want to normalise themto some extent, i.e. control them for some quantity or quantities reflecting a firm’sactivity, such as the annual tons of a given produced output (see, e.g. Martin et al .,1991; Haines, 1993) or the level of employment (e.g. Templet, 1993a,b). But, mostimportantly, in order to produce simple yet meaningful indicators reflecting the overallimpact on the environment, we should aggregate the information gathered so far. Thisis of course a critical step; the key problem of environmental performance measurement  Measuring the environmental performance of firms284 is converting large amounts of data into managerially useful information via appropriatemetrics (James, 1994).2.2.     Many of the quantities listed in Table 1 are naturally expressed in physical, chemicaland biological units. Normalisation can introduce an economic dimension to themeasurement. However, attempts to aggregate several indicators will result in unitlessor dimensionless measures. On doing that exercise, we might require that the resultingglobal indicator be standardised in order to allow for proper and easy comparisons.Thus, for example, we could define an indicator such that  v (0,1) (1)with 0 and 1 being the worst and best possible values, respectively, while the openinterval means, on the one hand, that it is always possible to do worse than the observedsituation and, on the other hand, that the absolute perfection (i.e. zero-waste, zero-impact) cannot really be achieved. To be more practical, we could define, instead,  v [0,1] (2)where this time the closed interval refers to worst and best observed practices. Thelower bound would correspond to firms that show no consideration for the environment,while the upper bound would indicate that a firm has adopted the best availabletechnology (BAT) for its industrial sector. This is, of course, a relative concept and theupper bound would have to be adapted each time a new, more environmentally friendlytechnology was invented.2.3.   An indicator can be relative or absolute. The quantities listed in Table 1 are absolute in the sense that they show absolute amounts of waste or resources without anyparticular reference point. Aggregate variables can also be absolute for the same reason.We shall define a relative quantity as being the result of the comparison of a givenabsolute variable with some predefined level, such as, for example, worst or bestpractice, or some standard coming from legislation, or any specified target. Thecompliance indicator defined by Haines (1993), i.e. the percentage of control samplesthat complied with a given quality standard for a given period, enters the same category.Other examples of relative and absolute indicators will be reviewed in the next sections.An indicator will generally be static in the sense that it is computed from pastobservations and simply reflects the past behaviour of a given firm with respect to theenvironment. In that case, it would allow, e.g. for various kinds of inter-plant, inter-firm or inter-industry comparisons. However, we might also want an indicator to be  prospective , in which case it would allow us to follow the environmental performanceof a given firm or industry over time or to monitor its environmental behaviour insome way (e.g. improving it through implementation of cleaner technologies). Here theproblem is data availability, since it will generally be easier to react with respect toprevious observations than to make plans based on often unpredictable events (markets,
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